Am I a tax resident?
We have received a lot of phone calls recently from clients asking questions about residency requirements for taxpayers. I have put a few notes together here to give you some basic ideas about what to look for, but please contact our tax accountancy team for your personal tax advice.
Warning. Issues around tax residency status can be very complex in nature, this article is for general information only. The advice here may not suitable for your personal circumstances. A special ruling may be needed from the Australian Tax Office (ATO) to address your particular situation. The opinion offered here is for general advice only.
From an immigration point of view, residency is about whether a person can legally enter Australia (citizenship or domicile). But from the ATO point of view it is more about whether an individual actually “resides” in Australia. There are three tests used for tax purposes, an individual needs to meet one of them to be considered a tax resident:
- Domicile Test. As per IT 2650, the individual’s domicile is in Australia (e.g., the taxpayer’s domicile of birth is Australia), unless their ‘permanent place of abode’ is outside Australia.
- The 183 day test. The individual has actually been in Australia (whether continuously or intermittently) for more than half the income year, unless the individual’s usual place of abode is outside Australia and the individual has no intention to take up residence in Australia.
- Superannuation fund test. This basically covers Australian government employees only, such as diplomats working at Australian posts overseas.
The residency status of a taxpayer is very important for the following reasons:
- Tax residents have much lower tax rates than non-residents. This link shows the current rates for FY2015.
- Overseas residents pay 10% flat rate on interest income.
- Tax residents’ overseas income is generally considered part of their taxable Australian income.
- From 8/5/2012, government has removed the 50% Capital Gains Tax (CGT) discount for non-residents. For example, as a non tax resident, Tom, purchased a house two years before 8/5/2012, and sold it one year after that date, the capital value increased by $30,000 (without considering any other costs). Tom will have a $20,000 capital gain taxed under CGT. The calculation is as follows:$30,000 total value increased x (2 year before 2012 / 3 year total investment time) x 50% CGT discount + $30,000 total value increase x (1 year after 2012 / 3 year) at nil CGT discount = $20,000 gain subject to CGT.
- Change of residency may trigger CGT events, in other words, the ATO will calculate the tax payable when you are moving into or out of Australia. The tax will only be payable on the “transaction event”, like buying, selling, or other CGT events, but the date of the change in residency will be the deciding date on record for the entire calculation. More importantly, your overseas assets may also be used in these calculations as well.
- Please also note, the wording of the main resident exemption does not exclude temporary residents.
So, please plan ahead if you are considering a change in your residency, contact us for your personal tax advice today!